The Real Estate Market in Palm Springs Stirs Due to Short-Term Rental Restrictions and Foreclosure Concerns

The few permits issued for short-term rentals in the city of Palm Springs are discouraging many people who wanted to acquire property in this region of California, which in turn is driving down property prices throughout the area. This new regulation has left potential investors and their dreams of large profits in tatters, as the restriction across the Coachella Valley has practically frozen the real estate market, with properties remaining unsold for long periods and those who invested their money in Palm Springs real estate during the pandemic now facing significant financial losses.

The rental industry saw a major revolution in 2008 when Airbnb appeared, greatly simplifying and facilitating the process for homeowners to rent them out quickly, short-term, and with very good profits. However, cities soon realized the problem, as a large number of homes were diverted to short-term rentals, causing housing to become less affordable and the market to enter a crisis, also causing other issues such as the high influx of tourists in areas that were previously residential, and with them noisy night parties, conflicts, and a decrease in the tranquility and safety of residents. The crisis extended to such an extent that cities are finding it necessary to take strong measures against these short-term rentals.

For example, among these measures, we find some like the city of New York, which allows this type of rental only if the host is present throughout the guests’ stay. Or the case of Los Angeles, which implemented a license that allows hosts to rent only their primary residence for no more than 120 days a year, provided they reside there for at least six months a year.

But the case is a bit more extreme in Coachella Valley cities like La Quinta, Cathedral City, and Indian Wells, cities that have completely stopped new short-term rental permits. Palm Springs, a place considered a tourist paradise in the state of California, opted for a different approach to tackle this problem brought by applications like RentCafe, Vrbo, and Airbnb itself.

The way Palm Springs addressed this problem since 2022 was by enacting an ordinance that limited short-term rental certificates in any neighborhood to no more than 20% of its homes. Today, many neighborhoods in Palm Springs have exceeded this limit, and there is a long waiting list of owners eager to obtain a rental license, a license that could take many years to obtain, especially considering that the rule includes that owners with licenses who sell their properties cannot transfer them to buyers.

Among the neighborhoods in Palm Springs that have exceeded this allowed limit are some very well-known and beloved in the city, such as El Rancho Vista Estates, Desert Park Estates, Vista Las Palmas, Gene Autry, Movie Colony East, El Mirador, Ranch Club Estates, and Racquet Club Estates, among others.

Undoubtedly, all this new regulation has frustrated many people who bought properties in Palm Springs intending to list them on Airbnb and achieve economic returns with short-term rentals. But not only that, this new rule has also caused home prices to decrease in these aforementioned neighborhoods. And in turn, causing many investors to have problems with their lenders and falling into foreclosures due to payment delays.

An example of this is commented on by Michael Slate, a local real estate agent, who says he has a client who invested just over a million dollars in a house and spent around $300,000 on renovations before the limit included in the Palm Springs city council rule was applied. Slate tells us that now his client is unsure if he could even sell the property for a million dollars.

The same is the case with Michael Copeland, a real estate agent, who bought a house in 2022 in the Gene Autry neighborhood for $1.8 million and obtained a rental license before the ban. However, now Copeland wants to sell the house, and Gene Autry has the longest waiting list in Palm Springs, with 32 pending applications, according to a news outlet. Copeland listed the house for $1.725 million, and now, after having his house on the market for more than a year, he has reduced it again, and it still remains unsold.

In an interview, the gentleman commented that he believes “One of the mistakes Palm Springs made with this new law is not allowing licenses to transfer when a house is sold.” Seeking some solution to this problem, the city has introduced a junior vacation rental certificate available to anyone, regardless of whether they live in a neighborhood with an occupancy limit. This certificate currently costs $642 and allows homeowners to rent their property at least six times a year.

Foreclosures Available:

• Palm Springs: 15 homes available.
• La Quinta: 8 homes available.
• Cathedral City: 10 homes available.
• Indian Wells: 5 homes available.

By Elias DaSilva | September 26, 2024